Onshore unconventional powerhouse Devon Energy Corp. plans to spend “significantly less” on exploration in 2013, but exploration activity still will remain at 2012 levels, CEO John Richels said Wednesday.

The formerly natural gas-focused independent has run from gas and liquids — even though it has a cupboard full of prospects — on low prices. Today all of the attention is for unconventional oil prospects in North America.

“Even with this reduced level of spending, we expect to maintain an oil-focused drilling program with activity levels similar to those in 2012,” Richels told analysts during a conference call.

“The organic conversion of our asset portfolio to oil weighting remains on track. We continue to invest a majority of our capital in high-margin North American oil projects. Over time, with a higher rate of return and greater capital efficiency, it should result in superior growth.”

However, some operational issues weighed on the company’s output in the latest quarter, with “third quarter top line production about 1% below the midpoint of our guidance,” Richels said. “The shortfall came on two factors: lower volumes from liquids-rich prospects than we initially planned, and the Jackfish ramp-up was slower than expected.”

Jackfish is Devon’s massive oilsands complex in Alberta. It was shuttered for three weeks for a turnaround, followed by a two-week restart. Without the turnaround downtime, Devon’s oil production in the quarter would have increased more than 20%, he said.

Meanwhile, U.S. oil production jumped 26% year/year, “driven largely by success in the Permian Basin,” where oil production jumped 35% year/year and accounted for nearly 60% of Devon’s 65,000 boe/d produced in the basin in 3Q2012.

In the Bone Spring and Delaware plays in the Permian, Devon added 25 new wells to production in the quarter. Initial production (IP) rates over 30 days averaged 575 boe/d. Also in the Permian, Devon brought five Midland-Wolfcamp Shale wells online with IP rates averaging 560 boe/d.

Devon’s development in the quarter in the Mississippian Lime proved solid enough to add 13 operated rigs. Devon also brought seven operated Granite Wash wells online with average IP rates of 1,065 boe/d.

In the Cana-Woodford Shale, output averaged 283 MMcfe/d in 3Q2012, with liquids output up 64% sequentially to 13,000 b/d. And in its Barnett Shale leasehold, where it is the largest operator, production totaled 1.4 Bcfe/d, with liquids output accounting for 22% of total Barnett production, which was up 11% from a year ago to 51,000 b/d.

Devon is planning to spend “significantly less” in the coming year than in 2012 “because of less leasehold capture,” said Richels. Also the company will have “higher drillbit activity” on joint venture (JV) projects; partners would “fund roughly 80% of well costs. And in 2013 we plan to aggressively pursue Permian activities, expand oilsands in Canada and accelerate the Mississippi Lime play.” Overall spend will be finalized in the coming months, said the CEO.

“We are unwavering on our top strategic objective, which is to maximize cash flow per share, which will allow us to deliver significant value as we move forward. We believe in the long-term growth potential of light, sweet crude in the United States and oilsands in Canada, as well as the option of world-class gas assets. These differentiate us.”

Oil production in the latest three-month period averaged 143,000 b/d, a 14% increase from 3Q2011. The increase was achieved in spite of the Jackfish turnaround, which reduced output by about 10,000 b/d. Regionally, the most significant growth came from the company’s U.S. operations, where year/year oil production increased 26%.

Total production averaged 678,000 boe/d, 3% higher than a year ago. Year/year declines in natural gas volumes driven by reduced activity levels in liquids-rich gas projects partially offset the company’s oil production growth.

“Devon’s capital program has delivered strong results this year with aggressive drilling programs in oil-focused basins,” said Richels. “As we have pursued higher-returning oil projects, we also have de-emphasized natural gas drilling, limiting overall production growth. This is exactly the right tactical decision for Devon in this environment and is consistent with our longstanding strategy to optimize returns as opposed to top-line production growth.”

In October Devon announced that it would consolidate its North American exploration and production operations group in Oklahoma City, where it long has been headquartered, and would close its Houston office by the end of March. The consolidation is expected to result in some cost savings, said the CEO.

Other cost savings are to come through joint ventures (JV) and outright sales.

The company in August agreed to sell 30% of its stake in about 650,000 net acres in the Permian Basin’s Cline and Midland-Wolfcamp shales to Japan’s Sumitomo Corp. in a transaction valued at an estimated $1.4 billion (see Shale Daily, Aug. 2). Gathering and processing assets in the Barnett Shale also were sold to Crestwood Midstream Partners (see Shale Daily, Aug. 28). And Devon entered a JV early this year with China’s Sinopec Group, which is helping to fund activity in the Tuscaloosa Marine Shale, Niobrara formation, Mississippian Lime, Ohio’s Utica Shale and the Michigan Basin (see Shale Daily, Jan. 4).

Devon reported a net loss in 3Q2012 of $719 million (minus $1.80/share), compared with profits a year ago of $1.04 billion ($2.50). Excluding a one-time $1.1 billion asset-impairment charge related to natural gas prices adjusted earnings were $355 million (88 cents). Revenue plunged 47% year/year to $1.87 billion. Wall Street had forecast earnings of 69 cents/share on revenue of $2.27 billion.

The company generated cash flow from operations of $1.4 billion in the latest quarter. Combined with $533 million in cash payments from closing the Sumitomo JV, s well as other asset sales, cash inflows totaled $1.9 billion.

Average daily oil-equivalent output was 2.6% higher than in 3Q2011. Realized prices, excluding hedging effects, fell 20%.